The financials sector remains the S&P 500's worst-performing of the year, but one technician thinks it's time for investors to flock to the embattled stock group.
Looking at a chart of the ETF tracking the financials (XLF), Craig Johnson, technical analyst at Piper Jaffray, believes it is taking a technical turn for the better. He sees the XLF reversing a downtrend that occurred after the sector's July 15 highs, and three bottoms that form what Johnson calls a "classic kind of bottoming setup" that could suggest that the XLF could break out.
Just how high could XLF go?
"From my perspective, it looks like there's about 15 or 20 percent upside from here just purely based upon the charts," he said Tuesday on CNBC's "Power Lunch."
Financial stocks have run into problems not just because the Federal Reserve has kept rates low, but also because of the situation that Deutsche Bank finds itself in. The value of the bank's equity has plunged as the German bank faces a $14 billion fine from the U.S. Department of Justice. And according to Larry McDonald of ACG Analytics, this situation could end up biting U.S. banks, which have a good deal of outstanding business with Deutsche.
The Deutsche Bank situation "means trouble for the U.S. banks as a contagion," he said Tuesday.
Still, Johnson makes the point that "in terms of the XLF, it's 40 percent banks, 60 percent other things," he said. "So there's a lot of things that make up the index that do look pretty good."
As of Tuesday's close, the financials are the only S&P 500 sector down on the year.
